Greek Bailout Talks Near Point Of No Return, Gartman Offloads Gold
Forbes
Greek politics have once again taken center stage as the Troika (ECB, IMF, and EU Commission) try to force Greece to accept stricter austerity measures in order to receive a crucial second bail-out that will allow the country to avoid default. Some, like Dennis Gartman, have expressed their skepticism and still believe Greece will have to default and exit the Eurozone.
German-imposed austerity versus Greek political resistance. That’s the crucial struggle, the fateful face-off global markets are being forced to watch closely. The latest set of negotiations have, once again, very quickly approached the point of no return.
After weeks of excruciating negotiations, Greek leaders appear to have reached an agreement with creditors over the so-called private sector involvement (PSI) as part of their plan to restructure their debt. While the actual terms haven’t been disclosed (private sector creditors are expected to take a 70% haircut), the negotiations have now focused back on structural reforms.
Research by Barclays suggests the PSI has “technically been agreed [on],” but it won’t “go ahead until the government has guaranteed the requested reforms.” The Greek government, headed by technocrat Lucas Papademos has already agreed to extend spending cuts to account for about 1.5% of GDP, or something like €3 billion ($3.94 billion). But troika appears to have demanded that the country further cuts the minimum wage (by about 15% to 20%), lay off additional public sector employees (about 150,000 according to Barclays), and end banking bonuses, among other things. Update: The Greek government appears to have accepted to trim about 15,000 workers as they work toward a final agreement, according to Trade the News. It was also reported that Greece is committed to its plan to cut at least 150,000 public sector jobs by the end of 2015.
The discussion has turned purely political, at this point. Opposition leader Antonis Samaras has expressed concern as to how much austerity Greece can take. But the country needs to roll over €2 billion ($2.63 billion) in debt this month and a troubling €14.5 billion ($19 billion) by March 20, making that day the de facto deadline for an agreement.
In other words, the risk of a Greek sovereign debt default is quite high. While ECB action has lowered the risk of a credit crunch and diminished the possibility of contagion, via the LTRO lending facility, a disorderly default could easily counteract many of Mario Draghi’s containment policies.
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